Wal-Mart Stands Up To Wave Of Lawsuits

The world's dominant retailer has been facing a tidal wave of negativity--from community activists trying to keep its stores out of their neighborhoods, to local governments mandating that Wal-Mart
supply workers with health insurance, to opportunistic lawyers trying to strike it rich by bringing on endless lawsuits. Critics--many of whom are as financially motivated as Wal-Mart is--are accusing the company of everything from discriminating against women, to mistreating illegal aliens, to denying overtime pay. Thousands of customers who slip and fall in a store aisle are also trying to reach into the company's deep pockets.

No other retailer seems to get under people's skin like Wal-Mart.
Sears Holdings
,
J.C. Penney
,
Target
and
May Department Stores
aren't subject to the same social criticism.

And with Wal-Mart's stock price stuck in neutral for the past five years, some shareholders are asking whether it's time to throw in the towel by settling most of these suits and getting back to minding the stores. Wal-Mart's sales growth has slowed in each of the last four years, to 11.3% for the fiscal year ended last January from 12.8% in 2001. The increase in same-store sales so far this year has slowed to 3%, compared with a 4% hike last year over 2003, although the company did see a rebound last month. Is it time for the company to yield rather than battle?

The answer is no, from a broad cross section of observers of the company's litigation strategy. Management experts say the company's strategy of confronting the charges head-on while not wavering from its low-price business model is the most effective formula over the long haul.

"When you're just about the largest company in the world, it's tough to breathe without offending someone," said Kathryn Harrigan, a professor at Columbia Business School.

Wal-Mart didn't respond to a call seeking comment on Wednesday.

Indeed, suing Wal-Mart is now a cottage industry, with some 5,000 lawsuits filed against the company each year. After one of Wal-Mart's 1.2 million employees gets to work at 9 A.M., three lawsuits will be filed against the company by the time he or she takes a 10:30 A.M. coffee break. By lunchtime, the count is up to six. By the time the employee heads home at 5 P.M., no fewer than 17 people or groups have brought a complaint in court. The same pattern will repeat itself tomorrow, and the next day, and the day after that.

The message is clear. To some, the American dream is no longer just about being successful, it's about not being too successful. Or it's about being successful enough for others to leech off of you.

The company is generally loath to settle all but the smallest suits, opting instead to take on plaintiffs' complaints while hammering home its message of "Everyday Low Prices" to the public. The more serious class-action complaints, each of which can potentially result in hundreds of millions of dollars in liability, are complaints the company has decided it won't take lying down.

Larry McQuillan, a director at the Pacific Resource Institute, a free-market think tank, said fighting the lawsuits makes the most long-term sense, based on building momentum for tort reform, and because winning some of these cases would deter more organizations from filing suits. The trial bar's strategy against corporate America up to now has been to file a suit, depress the stock price and bring the company to the table to get a settlement out of it, he said.

"Wal-Mart has been a leader in not bowing to those pressures, unlike many companies that are afraid of bad publicity and want to settle," McQuillan said. "If you don't defend yourself early on, and be persistent, you will be steamrolled."

"I would litigate everything," Harrigan said. "And if in the end the law made me do something, I'd fight to make sure my competitors had to do it as well." She added that shareholders shouldn't be overly concerned about litigation exposure, because it's a small price to pay for Wal-Mart's effective use of the world's supply chain to keep costs so low.

Some of the biggest cases against Wal-Mart currently open:

--New York City attorney James Linsey is representing a group of illegal aliens employed at janitorial contractors who are suing Wal-Mart on grounds involving back pay, lost minimum wages, false imprisonment (cleaning workers are routinely locked inside retail stores during their shift) and involuntary servitude, among other allegations. Linsey plans to file at least one complaint under the federal Racketeer Influenced and Corruption Organizations (RICO) act, alleging that Wal-Mart harbored and transported janitorial staff it knew were working illegally.

--Six women in California are suing over alleged gender discrimination, claiming they were denied promotions and received less pay than their male counterparts. The plaintiffs won class-action status that could blow their ranks all the way up to 1.6 million, though Wal-Mart is appealing that decision.

--Just last week, a suit filed in Missouri on behalf of employees who claimed they were forced to work off the clock and denied overtime gained class-action status.

-Internal memos leaked to the press recently showed Wal-Mart's human resources managers suggesting that to keep health care costs down, the company should hire people who are in good physical shape. Some say that initiative could spur a whole new wave of litigation based on discriminatory hiring practices, though plaintiffs could have a tough fight if the policy is found to have been discussed but not implemented.

To champions of the little guy, the current wave of lawsuits and anti-Wal-Mart sentiment represents justice and deserved comeuppance for a retail behemoth intent on keeping prices down by squeezing workers and suppliers to save every penny it can.

"It's the development of what is almost a new politics, deciding whether the company reflects the values of the community," said Paul Blank, a spokesman for "Watch Out Wal-Mart," a watchdog group that is critical of the company.

But Harrigan cites the familiar phrase that what goes around often comes around. For instance, what if many of the women allegedly denied promotions were secondary household breadwinners who didn't have the flexibility to work longer hours or switch stores, tasks that are routine for retail store managers?

"Some of these feminists could see this thing bounce back," she said, even while acknowledging that some individual lawsuits are undoubtedly valid.

"Sometimes it takes a lawsuit to test the boundaries of what you can do. It is a cost of doing business," Harrigan said.

"The rhetoric may be cumulatively having some effect [on sales], but the challenge is to make sure the in-store environment is good," said retail analyst Mark Husson of HSBC. "That's what will accelerate sales and accelerate the stock price."

Wall Street is generally bullish on the company, despite current high gas prices that are having some effect on its low-end shoppers. All but one of 25 analysts rate the stock as a "buy" or a "hold," with HSBC's Husson saying Wal-Mart has improved its product mix to include more high-margin goods. Husson, who is neutral on the stock, said the next challenge is to improve customer checkout times and store cleanliness.